The revised draft National Civil Aviation Policy (NCAP) has got a mixed response from the regional aviation sector. Overall, the aviation industry is happy that, at least, there is a government which is thinking in the right direction and is making efforts accordingly. The fact that the policy is laying emphasis on regional connectivity is the most welcoming feature, if India wants to be among the top three aviation economies of the world. The revised draft will be coming up before the Union Cabinet in early December and the Ministry of Civil Aviation (MoCA) has sought response/comments from the industry as to further fine-tune the policy.

Fare Capping Should Go

One of the most important suggestions that the regional airliners are making is that the capping on fares should be done away with in a free market scenario. The point being made is that the limit on fare per passenger per hour to Rs. 2,500 has not gone well with the airlines. The question that is going to crop up is when a flight between two regional destinations under regional connectivity scheme (RCS) has a flying time of 1:05, will the cost be double that of Rs. 2,500 per passenger as it goes beyond the one hour stipulation? Similarly, there are questions being asked on how two different types of aircraft – a turboprop and a regional jet with different cost of operations – are being bracketed under one flat rate of Rs. 2,500 per passenger per hour.

AIR COSTA PITCHES FOR MARKET DRIVEN TICKET PRICING

The Deputy CEO and Chief Financial Officer of Air Costa, Vivek Choudhary, said: “After many years a definitive policy in the aviation sector is emerging which is welcome. The draft policy does focus on opening new windows of opportunity for expansion/growth both in the domestic and international markets and we believe the demands of the sector will be met.” Choudhary adds: “While the policy aims to improve connectivity to small towns in India by developing no-frills airports and encouraging airlines through concessions and support of the government’s through the viability gap funding, capping of fares may not be the most productive in a free market economy. The ticket price should be a product of the direct supply and demand in the prevailing market and any effort to deviate from the same may not be most appropriate. Alternate methods of providing further subsidies and waivers to regional airlines or to specific airports in smaller cities to help reduce cost of operation of the airlines may encourage airlines to offer a greater number of seats at a reasonable price.”

Strengthen operational process

The Air Costa CFO who was recently made Deputy CEO further said: “Also emphasis should be laid on further strengthening operational process and procedures in line with the Federal Aviation Administration (FAA) guidelines.” He said that the support on MRO and maintenance activities is welcome. “We believe this is a step in the right direction and the policy should only further strengthen the aviation sector in India from here on.”

AIR PEGASUS SUGGESTS REDUCED AIRPORT CHARGES

The Managing Director of Bengaluru-based Air Pegasus, Shyson Thomas, said: “The capping of Rs. 2,500 for the one hour short haul flight though looks attractive from the passenger’s point of view, it may not be practically viable from the airline operators point of view. For example, if a regional airline is asked to operate from a costlier airport like Bengaluru run by BIAL (Bangalore International Airport Limited), it may have to shell out almost Rs. 1,800 out of that Rs. 2,500 to such airports in the form of various charges. The government should take initiative to open up the closed airports like the HAL airport in Bengaluru and the Begumpet airport in Hyderabad for regional airlines.”

Thomas said: “Though the policy mentions about making inoperative airports as operational low-cost airports, it is still silent on the fate of the closed airports in the country. There appears to be no realistic yardstick to measure the viability gap, as to the proposed VGF (Viability Gap Funding) to bridge the viability between Rs. 2,500 and actual cost of operation for the airlines. Each airline will have their own costing to arrive at their actual cost of operation and ASKM.”

Self-ground handling

One major good relief under the policy is all about allowing selfground handling by the airlines in all airports. Currently, the airports such as BIAL not allowing few airlines to do the self-ground handling and compelling them to take the services only from their concessionary at exorbitant prices with their 200 per cent margin added on to it, coupled with 14.36 per cent service tax, and 13 per cent revenue sharing with the BIAL etc, has resulted in costs skyrocketing. Same is the case with catering upliftment with their own concessionary which does not make business sense for some operators who can do these jobs themselves.

Focus on Tier-II and -II cities

“It is generally much encouraging that the government has initiated very good boost to improve regional connectivity in India. The Indian aviation was hitherto concentrating only on major cities and metros, and conveniently neglected regional connectivity to Tier-II and -III cities, where the passengers have been crying out for connectivity. By giving greater emphasis to regional connectivity, especially to the city pairs of Tier-II and -III cities, this government is trying to pave the way for balanced economic growth of the smaller towns along with the major cities and metro cities.”

Salient Features

Thomas added that the revival of un-served or under-served airports, concessions by different stakeholders, cost-effective security solutions by the Bureau of Civil Aviation Security (BCAS) and state governments, the proposal to bring down the VAT on ATF to 1 per cent, etc., are salient features of the revised draft civil aviation policy. The other outstanding features like exemption of service tax on tickets, and NIL service charges levied on Schedule Commuter Airlines, etc, are really very encouraging.

However, he mentioned that there is need for clarity on the 5/20 Rule. “The Rules put forth like earning 600 DFC etc., are still unworkable and seems to be unachievable at anygiven point of time.”

Main carriers may enter regional fray

With the policy push for regional connectivity, there is a feeling that mainline carriers may enter the regional space. Credit rating agency, India Ratings and Research (Ind-Ra) believes that any significant improvement in the regional market will result in full service carriers (FSCs) and low-cost carriers (LCCs) entering into the segment aggressively, putting pressure on the profitability of regional operators.

300 million tickets, humongous opportunity

All said and done, the government has proposed to take flying to the masses by making it affordable. And the draft policy puts forth these figures – for example, if every Indian in middle class income bracket takes just one flight per annum, it would result in a sale of 300 million tickets, a big jump from the 70 million domestic tickets sold in 2014-15. This will be possible if the air fare, especially on the regional routes, is brought down to an affordable level. The reduction in costs will require concessions by the stakeholders, primarily the Central and state governments and airports.

The vision of the policy is to create an ecosystem to enable 30 crore domestic ticketing by 2022 and 50 crore by 2027. Similarly, international ticketing is to increase to 20 crore by 2027. The mission of the policy is to provide safe, secure, affordable and sustainable air travel with access to various parts of India and the world.

Among other aspects, the draft policy lays emphasis on regional connectivity as can be seen from the stated objectives. The policy objectives are:

• Ensure safe, secure and sustainable aviation industry through use of technology and effective monitoring.
• Enhance regional connectivity through fiscal support and infrastructure development.
• Enhance ease of doing business through deregulation, simplified procedures and e-governance.
• Promote the entire aviation sector chain: cargo, MRO, general aviation, aerospace manufacturing and skill development.

CABINET DECISION IN DECEMBER

The Ministry of Civil Aviation is awaiting response to the revised draft from all stakeholders. Based on the request of the Federation of Indian Airlines (FIA) – representing IndiGo, Jet Airways, SpiceJet and GoAir – the Ministry has extended the date for comments/suggestions to November 30 from November 21. FIA had sought more time stating that the proposals had ‘far-reaching ramifications on the sector’ and it had to carefully study the same before responding. With regard to the three regional airliners, they are yet to form an association as they themselves are too new in the business (though Air Pegasus has parent linkages with ground-handling operations).

Nevertheless, the airlines have reportedly raised some of these issues while broadly welcoming the policy. It is said that the policy would be sent for the Union Cabinet’s approval in December and the final policy should be out in 2016. Will 2016 set the aviation sector on a new path, it appears so. The government seems proactive and needs requisite inputs from the industry and experts.